Proposed pay rises could leave NSW finances in tatters as unions prepare to prove workers deserve more.
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A 10.5 per cent pay rise over three years for public sector workers was among "must-haves" in a state budget focused on essentials, rather than cost-of-living handouts for cash-strapped families.
But the projected wage rise, including mandatory increases in superannuation payments, falls well short of several key unions' demands.
Treasurer Daniel Mookhey on Wednesday dismissed concerns about higher raises after his second budget, which projects a $3.6 billion deficit next financial year followed by further shortfalls.
"The baseline offer, particularly when you include last year's 4.5 per cent (rise), is the fairest and best offer that any state government has made in the country and equally the best offer that's been made to the NSW public service in more than a decade," he said.
"(It) also has been paired with the reintroduction of an independent umpire which (parties) can use should we find ourselves in a position where we can't reach agreement."
The state's re-established Industrial Court starts in July.
Unions NSW secretary Mark Morey said workers were ready for an independent umpire to rule if discussions with government breakdown.
"Unions have compelling cases to justify productivity and value-based wage rises and are more than happy to make them in the course of bargaining or through conciliation processes," he told AAP.
Daniel Hunter, head of peak body Business NSW, credited the Labor government for avoiding inflation-surging measures amid higher-than-expected revenue.
"However, the decision to grant significant public service wage increases - the largest in more than a decade - has also hit the budget bottom line," he said.
Industrial Relations Minister Sophie Cotsis told parliament the offer was a baseline for negotiations.
"And of course, there will be counter-offers," she said.
Shadow treasurer Damien Tudehope leapt on Wednesday's description of the 10.5 per cent rise as a "baseline" offer, saying higher rates could come with an un-budgeted multibillion-dollar cost if unions secured them.
"That impact on the budget would lead to deficits for many, many years to come, and in fact any prospect of a surplus would be in tatters," he said.
Nurses and Midwives Association assistant general secretary Michael Whaites said the government's offer was a starting point, adding negotiations for a sought-after 15 per cent pay rise were continuing constructively.
"They have said if systems reforms can be identified to offset costs, we can progress above that baseline offer and we intend to hold them to it," he said.
He suggested widespread financial inefficiencies existed in the health system, due to overtime, agency and turnover costs as workers left NSW for better pay and conditions in other states.
"There are significant savings to be made if the government improves the wages and conditions of nurses and midwives, and pays them what they're worth," Mr Whaites said.
The government's wage offer comes as Treasury forecasts consumer prices in Sydney will rise by more than eight per cent over the next three years.
In light of recent teacher and paramedic wage deals, firefighters want 20 per cent over three years while police are sidling up for 25 per cent over four years.
"We will not settle for anything less because that is what you deserve," the police union has told members.
Mr Mookhey has pointed to falling teacher vacancies and record nurse and police intakes as proof wage growth was an antidote to worker shortages.
Australian Associated Press
